Site Feasibility - How the numbers work:
Property development is a means of buying new property at wholesale prices. Buying wholesale means you're paying for the materials and labour in sourcing the site and building on it. This is opposed to paying retail, which includes the developer's profit margins, GST payable on new homes that the seller pays (& would pass on to the buyer), selling and marketing costs. The site feasibility is viable when the value of the end products is more than all the costs to buy the land and build.
To give you an idea of the rough (but typical) wholesale costs involved, here's a case study of 2 first home buyers and a downsizer, joining forces to buy a three unit development site to subdivide and build together for wholesale prices.
Case Study:
In this case study, Catalyst Developments has matched these 3 buyers:
- John and Jenny happy with the rear villa with double garage and more parking on driveway for guests
- Kelly being interested in the more secure and slightly lower value middle villa
- Dave and Marg wanting the street front villa
Here are some numbers for their Innaloo WA site purchase and build costs (note that each property and building design will be different so specific costs and site feasibility will vary project by project):
BUYING THE SITE
Catalyst Developments' buyer matching service: $99 each (*limited time offer only*)
Purchase price of land: $720,000
Government Duties: $28,224
Due-diligence, consultants and settlement costs: $28,822
PREPARING THE SITE FOR DEVELOPMENT
Demolition: $18,000
Design, approvals and subdivision costs: $46,600
Retaining walls: $30,000
CONSTRUCTION COSTS
3x Villas: $660,000
HOLDING COSTS OF LAND OVER 18 MONTH DEVELOPMENT PERIOD
Rates, taxes and insurance: $5,000
Interest costs: $62,103
TITLE PARTITIONING COSTS
Conveyancing fees: $2,400
TOTAL COSTS = $1,601,149
If the values of each dwelling were the same, you could divide the above by 3 people - but in this case study, the end values of each dwellings were as follows:
- $570,000 for the front villa (33.33%)
- $560,000 for the middle villa (32.75%)
- $580,000 for the rear villa (33.92%)
So using the same percentages for total costs, here's what each villa cost:
- Front villa total cost: $533,716
- Middle villa total cost: $524,353
- Rear villa total cost: $543,080
All parties in this buying group had not only met their budget constraints, but ended up with a brand new, customized home for under the price of where market values were. They could also be confident that the property and builder was well-researched by professional advisors working for them, and each buyer's finances were pre-qualified before starting the venture together.